Bread Financial Holdings, Inc. (BFH) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us. For those I haven't met, I'm Mihir Bhatia. I cover consumer finance and specialty payments companies here at Bank of America. We're very pleased to have Bread Financial Holdings joining us at the conference today. Joining us from Bread is CEO, Ralph Andretta, and CFO, Perry Beberman. In terms of the format, we'll do a fireside chat format. I'll ask a few questions to get it started. And then with about 5 to 10 minutes left, somewhere between there. We'll open it up for audience questions if anyone has any. So why don't we just get started with that. So Ralph and Perry, thank you for joining us today.

You bet.

Look, why don't we just hit the big topic that has been a lot of investors' heads right upfront, late fees. Big news...

I thought you're going to say Super Bowl.

Super Bowl yes. Go Chiefs.

Yes, I've answered this question a few times over the last couple of days. So I think a couple of things. One is the industry and us, obviously, we're anticipating an announcement from the CFPB. So we've been working through what-if scenarios. We were not anticipating the headline grabbing $8 announcement. That was kind of a surprise. We're going through the proposal now. Honestly, we not sure how the CFPB came up with the $8 and the cost to collect. That's an amount that we don't recognize at all. I think the ABA had an appropriate response in terms of pointing out what is the cost to collect on average, what is the -- what can be the consequences or the unintended consequences of the proposal. I think the CFPB kind of neglected their own rules and not consulting with small banks and credit unions. So I think that's going to come back to haunt them and really elongate this and may end up in legislation. So I think, for us, it's not an impact in 2023, and could be an impact sometime in '24. The reality is, we're fiscally responsible, and we have shareholder responsibilities, and we're going to close the gap. There's a number of ways to close the gap. Certainly, you look at raising your APRs across the board and as appropriate to price for risk. There's always opportunities to put some fees or transaction fees on cards, that's an opportunity. Our contracts with our partners, the majority of which, 95%, give us the opportunity if there's a legislative or regulatory change to go back and talk to them, but you don't want to really put this on the back of your partners. You want to -- their partners and you want to treat them appropriately. And lastly, it's going to affect the level of credit we give, and where you draw the line in terms of giving credit to individuals. I think about the $8, and if it cost me $8 every time I got a speeding ticket, I would pretty much speed all the time, wouldn't make a bit of difference to me on the $8. And I think when you charge $8 and people miss or pay late, the impact could be, we're going to report them to the credit union. I think that's an intended consequence of this, and we'll continue to do that. So we're working through the scenarios like we did with Card Act, I don't think there's 1 silver bullet that closes the gap, but there are a number of opportunities that we will close the gap with.

You talked about closing the gap. I think, one of -- a question I get a lot from investors is, a lot of other banks do disclose their interest separately between income and fees -- and fees that we don't get from Bread as much. So maybe talk about how much that gap is, or at least help us dimensionalize how to think about that. Is it similar to other banks? What are we looking at?

I would say we're in the same neighborhood as Synchrony, right. That's the neighborhood we're in. Synchrony has spoke about the issue, and we're in the same ballpark.

Okay. Great. And then just being -- my last question on late fees, I promise I'll get off it and move on. But what are you hearing from merchants? Are they engaged with the issue? Do they even recognize that this is going to impact their payments? They're just like we'll deal with it when it happens.

Yes, I think so. I mean we've heard from the more sophisticated merchants, to be frank. And in terms of similar to what's happened with Card Act. Well, they see this as a less of an opportunity to cast a wider net on customers and a smaller basket at the point of sale. And I think they will similarly line up like they did around Card Act and voice their opinion through their associations.

Great. So let's move to the business. We're halfway through the quarter. What are you seeing in your data? What are you hearing from retail partners about 1Q? How is the U.S. consumer holding up? Things trending in the direction you expected better?

Yes. Let me -- I'll start and then I'll turn it over to Mr. Beberman here. So I think we haven't seen anything really relative for February yet. We're just in the middle of February, but January was a strong month for us in terms of sales. It was stronger than, obviously, 2022, which was a little bit lighter, but you got to remember, we had added AAA to our portfolio. So we saw good sales growth in January of 2022.

I think you covered it.

Yes.

Okay. In terms of what consumers are buying, just their behavior. One of the things you guys get a little bit more data maybe than some others.

Yes.

One of the things we've heard about is could you -- like when the recession is coming, consumers behave a certain way, they start moving down, maybe they're buying more private [indiscernible] . Are you seeing any of those consumers doing -- engaging in those types of behaviors that maybe give you caution as you think about the next few months?

It's -- we'd expect consumers to move from discretionary to nondiscretionary purchases. And we're seeing a little bit of that. But 3 years ago, that would have really concerned us more than it does today. Because if you look at our portfolio today, we're not a one-trick pony anymore in terms of private label. We have a good private label portfolio, but we also have a diverse portfolio of co-brands and direct-to-consumer cards. So while that spend is shifting, it is still remaining within -- with us. I think the other thing is you would expect with inflation that the basket would get bigger. We're seeing the basket is about the same size. So we're not buying -- Perry put a very -- if I spend $1,000 a month, I'm not spending $1,070 because of inflation. I'm spending $1,000, I must be trading down on quality on some certain things. I would tell you 1 of the industries that has remained strong, and it's an industry we have market share in is beauty. That industry really has remained strong. So people want to be pretty throughout any kind of economic cycle, I think.

Maybe on credit, I had similar story on credit, holding up nicely or anything relative to your expectations -- what's happening there?

Yes. I think what we're seeing with credit is very much in line with what we've expected. And when we've talked about credit for over a year now, we said the consumer is going to normalize back to prepandemic behaviors, take on -- resume their degree of leverage that they had previously as savings had worn down from the government stimulus. And as you think about the stimulus, it really benefited those in, I'll say, less than $100,000 in terms of their cash flows, whereas -- I'm not going to get into the misdirection of government stimulus that's still sitting on people's balance sheet. On the upper end of the income folks who really didn't need it, but for those that needed it, it really benefit them to deleverage, increase their spend and the normalization that we expected to happen and conclude by the end of 2022 had largely occurred. And now it got accelerated a little bit because the inflation was up there. And so what you're hearing is others talk about that they're not fully normalized. When I think about who's not fully normalized, it's more so upper income are starting to normalize back to pre-pandemic levels of losses, and it's accelerating a little bit because of the impacts of inflation on utility bills and rents and other things like that. But what we're seeing now is the crossover where the elevated inflation is starting to, as we say, give the entire portfolio cold. The entire nation has a cold right now because of inflation. And what the Fed is trying to do is make help people feel better by getting inflation under control. And hopefully, that happens by the back part of this year. Some of that is how much unemployment comes with that. And that's more of a back end of the year item that perhaps is a leading indicator to what 2024 might look like. But for what we're seeing now, I'd say things are tracking as expected. Our guidance of 7% losses for the year contemplated that. And 1 piece of that for us, you have 2 additional nuances in our numbers when we say we're going to be up 150 to 175 basis points year-over-year is, you have a large portfolio coming out that would increase your loss rate because it has better than portfolio average loss rates. So that will amount to some amount. And then in the first part of the year, we've signaled that, due to the customer-friendly actions that we have taken with the conversion where we let payment windows open, waived late fees, did things of that nature, July number was suppressed. That's going to come through in February, and there's a couple more months in the back part of the year that's going to affect a couple of months in the second quarter. So then that's behind us, but that also contributes to a little bit of that elevation in the first part.

On that -- on credit, you mentioned country having a cold -- inflation, effectively, right, is the issue.

Yes.

And I think on your earnings call, you talked about some of the underwriting models were really geared more towards unemployment versus accounting for this kind of inflation. Can you talk about that a little more, just expand on that? And I guess the question is, what gives you confidence that the -- through the cycle, 6% losses this year, 7% -- if you have inflation now, okay, inflation comes down, but then you might have unemployment going up, does that keep losses elevated and then that 7% maybe doesn't -- look like 7.50%.

Yes. Great question. And so let me -- and if I add a confusion to the story of models, my apologies, there's credit underwriting models that is unique at the account level when you are making credit decisions for the customer based on their profile, meaning what's their credit bureau attributes, what's their onus behavior? What are you watching in terms of their behaviors that would say, typically, okay, they're performing really well, and you see their trades externally look good and we can make a line increase. Now as you go real time, it doesn't matter if inflation is happening or unemployment, it's the condition of that consumer's balance sheet that you can observe, and their payment behaviors that then say, "They used to pay 3x minimum payment. Now they're only paying a minimum payment, something may be going on." So you may not get the line increase. Or they've missed a payment. Okay. Now we're going to look at that for a risk detection action where you might close the remaining open to buy down. Same thing with new account underwriting. You're getting real-time data all the time. So for credit underwriting that's dynamic. We're always looking at that. You are also looking at your confidence in the risk scores. We use Vantage scores. Sometimes -- and Ralph talked about this in the past, Vantage scores got a little elevated during COVID because people's balance sheets look a little bit [indiscernible]. We didn't lose -- we didn't lose in our underwriting. So now, with inflation, we're projecting Vantage risk score will start to migrate down. So you're contemplating all that in your real-time underwriting. I think where I spoke about models not contemplating periods of high inflation, and they're really geared towards changes in employment, our loss forecasting models and CECL models, where you're trying to build your reserves around that. And so industry models have traditionally been highly correlated to changes in employment, and you can look back at past cycles and calibrate to that. The regulators look at that, say, "Hey, how are you demonstrating that you've used those past cycles to inform your current future look." So there's an element of that does also feed back into your underwriting because certain characteristics would lead to losses. But that's where we are being thoughtful about understanding that. So what we've done in our CECL underwriting models is leaned into some of the more severe scenarios to care for what we don't believe the models care for with inflation. So we've looked at a couple of more severe scenarios, which has a peak of 7.8% and an 8.9% unemployment rate in the next 24 months and weighted those into a risk overlay to establish our CECL reserve rate.

Got it. That's helpful. On the payment side, are you seeing consumer payments? Are you seeing an uptick in consumers making minimum payments? Are you seeing any of the other worrying signs [indiscernible] ?

Yes, I think that is exactly the correlation. When you start to see an increase in delinquency, the inverse is happening means your payment rates are slowing.

Right.

And so you do start to see some people starting to make minimum payments that were paying multiples before -- some people obviously missing some payments.

Yes. Okay. And then just going back to the late fee proposal, have you made any changes already to your underwriting to your credit decisioning, to your business in case that does get implemented or for now, it's still early, let's see what -- how that shakes out, not changing any planning for it, but not changing it?

No. At this point, we are operating like we have where you're underwriting for profit and getting prepared, as Ralph said, readying the playbook with the right levers. So we then -- once we know what the final proposals are, then we'll act. And yes, we may take some actions ahead of when the actual implementation date is. But at this point, it would be incredibly speculative to do that.

Okay. Great. I do want to ask about -- going back again to credit, through the cycle loss rate below 6%, right? What's the average unemployment rate that you consider when you say something that? Like what is it through-the-cycle loss rate? Are we talking about what we've had for the last 5, 6 years? Or are we talking about longer term? We have had 3%, 4% unemployment for large periods. Is that the kind of unemployment's backdrop?

Yes, I think it goes to that. It goes to the portfolio construct. When we say through the cycle, you're going to have periods, if we say, through the cycle average of 6%, that means you're going to have periods of time above 6%, and you're going to have periods of time below 6%. That's how you get to that average. So then it also comes to the composition of the portfolio, product mix, partner mix, the underwriting, the economic conditions. So it's trough to trough, peak to peak. It could be a 10-year window. It really depends. But that's the logic behind the concept of that. If we're at 7% for 1 year and then you're running back at...

5.5?

It just depends on but that's what we're building the portfolio for.

Maybe switching gears to the system conversion. That's something you're getting passed, you passed it. Now, I understand there's some credit issues left. But from a day-to-day operations wise, you're past it. From the outside looking in, obviously very difficult for us to say what that actually means for your business. Maybe help us out. What are some of the capabilities that has added to you -- to your toolkit?

Yes. It was a very big undertaking to start. So let's just start there. We're converting a legacy system that ADS ran on for years to a state-of-the-art system we were outsourcing. And while we are we doing that, we are migrating to the cloud. So very complex. But I think there's a number of things that the conversion does for us. One is, it gives us better co-brand capabilities that we would have had to develop itself. So speed to market, tiered pricing, better bank consolidation capabilities, all those are really good capabilities that drive -- that can drive incremental revenue and bring on partners quicker and bring on -- the speed to market is much, much better. Very sophisticated fraud tools, very sophisticated tools around fraud and other types of preventative measures. But if you think about it, there is a cost savings element to it, of course. That cost savings element, we'll look at that and look at that using as product development money. And so that's the right thing to do. But if you think about go back to CARD Act and how much money all of the issuers had to use to kind of convert their systems to CARD Act, we're out of that business. Now we are a user and a customer of this outsourced system. So the change is made. We will draft behind those changes, which were regulatory and statutory changes. That helped us a great deal. Our mind share is focused on doing the right things for our customers and being very focused on intellectual capital, not on maintaining kind of a basic system that everybody has. So...

One example being the CFPB rule change -- if there was a cap on late fee, as a percent of minimum payment due, we're not going to have to worry about programming. I mean we'll obviously test whatever it is -- but the [indiscernible] of the world are going to have to put that in place across all their partners.

So it's -- it was an ambitious undertaking. We're glad that we've done it. It wasn't without bumps in the road, and we expected that. Some bumps are bigger than others. But I think we did the right thing by our customers and our partners through the conversion. And I think it's a 10-year horizon. I think you'll see the benefits coming starting very soon in terms of the dynamics of that system.

Yes. And when you talk to people going through these types of major conversions, we had done this where I had come from to another card platform. It -- there's a burn-in period, as Ralph said, to get all those benefits fully operational. So it could be a couple of years before you're really seeing the full pull-through of all the expected benefits.

And the big benefits as we think about the -- it's not on the cost side, it's probably more on capability.

Capability, right? And us using those capabilities. Tiered pricing for one is a great capability, right? You can we're talking about pricing for risk. Clearly, that's a great way to price for risk.

As we think about loan growth, what are the big opportunities within the portfolio? Maybe give us a peek under the hood. Are there some large portfolios with low penetration rates where you can grow? Is it cross-selling more different products to those portfolios, where is the opportunity?

Yes. I think it's all of the above, right? So if you think about 3 portfolios we brought on in the latter -- mid- to latter part of 2022, B&H Photo, de novo for us and -- but really has done extremely well. So opportunity to grow that portfolio. We brought on the NFL. Again, iconic brand, but the predecessor, it kind of was just limping along. I think we've sold more -- acquired more cards last year than they did in their 3 previous years. And then you have AAA, again, a large portfolio of 56 million members. A lot of that's untapped. If I look at the penetration of AAA, there's opportunity there. And so right away, we revamped AAA with 2 value props that are top of wallet. And I think there's opportunity to grow those portfolios. And then you've got your ancillary products like installment loan where we can offer those to our existing partners as we move forward. I think we announced today, Michael has just come on a de novo and that will grow in 2023 as well. So I think if you think about growth, I think 75% of our growth will come from increased penetration in our current partners and enhanced product development of our proprietary cards that we have, the 2% cash card in our MasterCard that we have in the marketplace, those will continue to grow. Offering other products to our existing customer base and probably 25% will be inorganic growth, as I think about our growth. Now our growth in 2023, I think, is responsible. It's mid-single-digit growth. I think in an environment where there is uncertainty, I think that's a right level of growth for 2023. And our expense growth, we're promising moderate operating leverage. So we're able to ensure that if the revenue growth is not what we see, we pull back a little bit on the expense side. But I think we've got the right levers, and I think the 2023 is a year of responsible growth as we move forward.

You mentioned inorganic growth. And I was curious, given the uncertainty, what are you seeing in terms of just the competitive intensity for programs that are coming up for bid? Are there are -- what's that like right now? Are you seeing big opportunities there? Or you're now focused on...

Yes. There's always opportunities. If you look at our receivables and you discount BJs because that's coming out, 85% of our book is secured through 2025. That's a nice base to have, right? And the remaining 15%, we're working on it in terms of renewals and stuff. So there's always going to be 1 or 2 portfolios out there that are in play. The competitive environment hasn't lessened. It's still a competitive environment for these types of portfolios. What I like about our business is that we can compete really up and down the food chain. So we can compete with the big boys and win like we do with Barclays -- I'm sorry, like we did with the NFL and AAA. And we can look at those $100 million portfolio of de novos where you grow with the partner. Those are very profitable because there's no -- little customization, there's good pricing and you begin to grow. You put 5 or 6 of those together, that's $600 million in receivables and -- with a long tail, and you put together that string of pearls. So we can compete up and down that level. Competition, obviously, at the top end is very high. And when you get -- when you move from them, it's a little bit less. So we're able to kind of do all of the above. And Michaels is a clear example of something that will grow with them. I think it's a really nice portfolio. It's kind of nice brand, and we'll end up helping grow that portfolio in a meaningful way. Same thing with B&H.

On the de novo programs or the smaller programs, one concern for a lot of people had been, all these fintechs and the new age companies coming in and hey, maybe you don't need a store card anymore. You don't need this private label card. Now with maybe valuations getting a little more rational in that space, those companies focusing a little bit more on credit underwriting than maybe they have, are you seeing more opportunities there, less competition there? Or is that not?

I think we're seeing opportunity. I think we were very thoughtful of how we entered the buy now, pay later market. So if you think at buy now, pay later, it's really 2 products, you have the paying for product and you have installment loans right? There was a big rush by competitors on the pay-in for. They paid rational fees to retailers. And the returns were not very good. But in a frenzy to have eyes on glass, that's what they did. We took a step back and said, there's not margin in that market. The margin is an installment loan, and that's where we're going to focus. So first thing we did was saying, let's get our regulatory and compliance house in order. Let's make sure our systems are compliant. We're a bank, and we're regulated so let's make sure we're doing the right thing in terms of regulation and compliance, and we've done that. I think our competitors now, it's almost a perfect storm, high loss rates, high funding costs and high competition in the market. And that's -- that's a bad hattrick if you will. And so I think we're seeing opportunity with our current retailers. Our solution is a white label solution. We're not looking to intermediate the partner. We're looking to enhance the partner. I think the partners are starting to realize that. And we'll be very thoughtful about how we enter that -- the buy now, pay later is back in vogue. We'll be very thoughtful how we enter that market. But installment loan part -- the installment loan part of buy now, pay later is we view as an opportunity to grow.

Maybe switching to funding a little bit. Talk to us a little bit about how you manage the funding side of the business. Remind us of the fixed versus floating rate components of your asset and liability sides.

Yes. So the one thing we've talked about around our funding is, we're focused on growing our direct-to-consumer deposits. It's up over 70% over the past year. Ralph's put out their target of getting that up to 50% in time, and I don't think that necessarily is the end game, but we'll cross that when we get there. And honestly, as we look at when the big portfolio goes off the books in the first quarter, that direct consumer deposits will become a greater portion of the mix just due to the math there. We were going to be reentering the asset-backed securities market shortly. We're going to be looking to take care of some of the parent debt that is coming current around mid this year. So we'll start to pay down some of that debt, restructure some of it. So overall, we'll -- I'll continue to say that we're slightly asset sensitive today. Cost of funds will have -- will get remixed and repriced because of the work with ABS and the parent-level debt. But we expect to be able to maintain a net interest margin of about 19.2%, consistent with last year for the full year. Now that may mean some quarters are higher or lower depending upon what's going on with losses, where are you at in the restructuring of some of the debt and so forth. But that's -- we feel pretty good about that. We're not trying to be arbitrage interface one way or another. As interest rates go up, we continue to benefit slightly from that, but we're trying to make sure that we're kind of neutral on interest rate moves.

We've definitely got a fair number of questions around the debt that's coming due. I think you -- do you want to talk about that a little bit, just what your plans are with that, and expand on what you just said?

Sure, sure. So we've -- as many of you know, last year, we hired a new Treasurer from big financial services company. We are meeting with lots of bankers, and we're getting things lined up to tackle that. And we've got plans to increase the dividends from the bank that are really, really well capitalized, or overly capitalized up to the parent, which will help a combination of paying down debt and then restructuring debt.

And in terms of getting dividends out of the banks, as you mentioned, they are pretty well capitalized. I think people see that in their filings. But any issues with the regulator? Do you have to talk to the regulators on that in terms of how much they're comfortable with? How does that work?

Absolutely. So let me share some of you. So one of the things that when I came in, and Ralph as well, there probably wasn't as much historical discipline on capital planning and capital policy. We've established a capital policy at the corporate level. The banks always had something. We're putting more rigor into our stress test models, and we're sharing this with the regulators to get them comfort with the way we're running this company as if we're a bank holding company with a discipline and thoughtfulness of a leadership team that's going to be disciplined. We do what we say we're going to do. So if we say we're going to dividend up some more from the banks to the parent, we're going to take it and pay down debt and not go do something where you're going to harvest that and buy back shares, right? There's -- we're trying to get this balance sheet built in a way that is resilient. We're getting to the right capital levels and we're taking care of our debt. And then obviously, we'll take care of responsible growth and shareholder returns in the future. but they were very supportive of what we're talking about.

You also mentioned growing consumer deposits. You also added a general purpose card. Talk about that strategy a little bit. What is the longer-term vision or end game, if you will? Is it to be more of a consumer have more -- a little bit more of a consumer brand than you've had historically? Or is that not part of the equation?

Yes. It's an interesting time. When I arrived at ADS, great reputation with how to manage partners, but really a one-trick pony in terms of product. It was a private label card and even co-brand card was a private label card in co-brand clothing. It wasn't an opportunity. It didn't have a diverse portfolio. So whenever there came a question where malls were out of vogue or retailers were going to default or go bankrupt, the immediate new jerk reaction was well, how is that going to hurt ADS? And I -- we took out on it ourselves to really diversify the portfolio. And our initial foray into that was really a safe product. So we were losing a portfolio upon my arrival. And I asked a simple question to the Ben leadership team. I said, when you lose a portfolio and the partner -- and the successor doesn't want to buy the receivable, what do you do? I said, "Well, we just run it off." I said, "Well, that kind of ends today." Let's think about how we can offer an alternative product to those people that qualify and see how that goes, and the alternative product we offer today has 1 million customers and continue to spending strong. That gave us some of the -- gave us some confidence in terms of, we should go right straight to the consumer for certain things, not everything, but certainly go right to the consumer. And we introduced this year, the 2% Bread American Express Cashback card, running on the American Express network with economics that work for both American Express and us, and we're able to reward customers with 2%. And because we underwrite the way we underwrite, able to cast a wider net in terms of inclusion. American Express like that, we like that, and it's a product that is catching on. We're never going to be the corner bank. We're never going to be out there with a $1 billion marketing campaign. We like the name Bread Financial. It's better than ADS. It's a little better meaningful. And we'll continue to offer our products direct to consumer. We'll offer our product -- our co-brand products. I think the diversified portfolio is our goal, and that's where we're moving to, right? We're always going to have -- private label is our stock-in-trade, right? It's got good margins. We know how to operate it. We know how to manage it. We had to underwrite it, and there's nice margins there. But to offset some of the higher cost of credit there, you look at co-brand and direct-to-consumer where the margins are good and the losses are a bit better and you balance your portfolio. As long as it balances out to -- what we promised our investors is 6% through the cycle and mid-20s ROE and it's all a bit of a puzzle. And now we're there, installment loans, we have that ability. So we've revamped our entire product set over the last 3 years. And today, we're not as reliant on private label.

So I'll open up to questions after this 1 last -- going to ask 1 last question, but if anyone has, you can get mic and ask a question, but -- just I did want to end with just valuation. The valuation is, I'd say, lagging peers a little bit. Now I understand you obviously don't run the business to manage the stock price day to day. That said, I do want you to take the opportunity to maybe highlight some of the things when you have these discussions with people like me, investors, what are we missing? What are investors really missing? What is the -- what do you think is missing about the story?

I love answering this question because I would ask the investors, what are you missing from this? So if you think about the journey over the last 3 years, we completely revamped our Board. Our Board now is a board of people that are operators and have industry experience, financial services, marketing technology, brand new board, really a well-engaged Board. We've completely revamped our management team. We have a management team that has probably 300-plus years and unsecured lending experience, comes in pretty handy in times like this. So we have a completely different management. We've built a business development team that's second to none. We've won more than our fair share of new business. We've re-signed existing business. We've diversified our product set. We've strengthened our balance sheet. We've simplified our business. We've got rid of all those ancillary business. I was on the job 20 minutes and people were asking me what I was going to do with brand loyalty and air miles. So we've adequately moved those businesses to operate on their own. We've posted positive PPNR for the last 7 or 8 quarters. I think we've done everything we've said we were going to do. We've disclosed more. We're more transparent to investors. I don't think there's anything that we've promised that we haven't delivered on. Now I get it. I think ADS in the past may be disappointed investors, and there's a penalty to that. You get into the penalty box. I was hoping for a 2-minute penalty, not a major. But I think we're going to continue to do the things we're going to do. We're going to continue to be consistent. We're going to continue to manage this business as a bank and be -- and continue to build our balance sheet. Now ultimately, at some point, when we feel our capital ratios are where they should be and our TCE -- and we have a strong balance sheet, then it's time to return value to shareholders. And I think that's what I -- that's -- but we've got to do that over the period of time to ensure that when we do that, we don't set the business back again.

Anyone has any questions?

I think you all have articulated maybe some of the actions taken on credit box and tightening on the margin and what feels maybe stark to some of your less private label-focused peers is that doesn't seem to have been a ton of tightening from more kind of branded broad general purpose card. And I don't know what you have to comment or anything you could share about that divergence. It feels like a select few have taken decisions like you have, and the rest of the industry is still pretty wide open.

Go ahead.

Yes. I think it goes to what I talked about is observing account -- or customer behavior at the account level. So really, where those actions occur, it doesn't matter if it's private label, co-brand, branded product. When you see consumers starting to show signs of stress, you take action. And so we talked about earlier, our portfolio, by the nature of where we underwrite, where we go a little deeper, we were seeing some of that normalization faster. When you cross over into things we start to see -- all right, it seems a little bit stressed beyond what is normal, you take action. But even in the normal times, that's normal to see consumers having a little challenge with their ability to pay. And that's why it is a daily process where you evaluate those accounts where you need to take the appropriate credit actions.

It doesn't look like there's any other questions so I think we're good.

Thank you, all. I appreciate your time.

Appreciate your time.

Thank you, Ralph. Thank you.